Q2 2020 Tennant Co Earnings Call
[music]. Good morning, My name is Christine and I will be your conference operator today at this time I would like to welcome everyone to Tennant company's 2020.
Second quarter earnings Conference call. This call is being recorded there'll be time for acuity at the end of the call. Please press star one if he would like to ask a question. After the acuity. Please stay on the line for closing remarks from management. If you joined our call today you have palace.
Phone and locked into the conference call presentation on your computer. Please mute the audio on your computer to avoid any potential quality issues. During the call. Thank you for participating in Tennant company's 2022nd quarter earnings Conference call.
Getting today's meeting is Mr., William Pate Senior director of Global financial planning and analysis and Investor Relations.
Tennant company Mr. pre you may begin.
Thank you Christine good morning, everyone and welcome to Tennant Company's second quarter 2020 earnings Conference call I'm, William freight senior director of Global financial planning and analysis and Investor Relations.
Joining me today or Chris Killingstad tenants, President and CEO, Dave Holeman, Chief operating officer, and anticipate Willa, our interim CFO.
Today, we will update you regarding our second quarter performance and our broader business impact of the Corona virus pandemic.
Chris will brief you on our operations, Dave will discuss progress, we're making on our enterprise strategy and Andy will cover the financials.
After our remarks, we will open the call to questions.
Please note a slide presentation accompanying this conference call and is available on our Investor Relations website at investors Dot Tenneco dotcom.
Before we begin please be advised that our remarks. This morning in our answers to questions may contain forward looking statements regarding the company's expectations of future performance such statements are subject to risks and uncertainties and our actual results may differ materially from those contained in the statements.
These risks and uncertainties are described in today's news release and the documents, we file with the Securities and Exchange Commission.
We encourage you to review those documents, particularly our safe Harbor statement for a description of the risks and uncertainties that may affect our results.
Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items, our 2022nd quarter earnings release includes comparable GAAP measures and a reconciliation of these non-GAAP measures to our GAAP results.
Our earnings release was issued this morning via business wire and has also posted on our Investor Relations website at investors Dot Tenneco Dotcom now I'll turn the call over to Chris.
Thank you William and thank you everyone for joining us today.
The global Health crisis effect, so Sol and we hope you are staying safe and healthy.
And it's a 150 year history tenant has demonstrated a deep commitment to customer service.
We honor that commitment by providing the equipment parts and service our customers need to keep the facilities clean and safe during this pandemic.
Our top priority as the health and safety of our employees.
Customers and business partners.
And discussing today's financial results, we will provide as much context as we can about what we're seeing and how we're responding to a continues to be a fluid and on predictable situation.
While our second quarter revenue was down year over year. We are encouraged by the fact that the decline was significantly less in June that in April and May.
Furthermore, our July order patterns are consistent with what we saw in June.
As we outlined in our last call, we took certain actions to manage our costs and cash flow, while preserving our ability to wrap up quickly when global markets eventually recover.
In the second quarter, we implemented a combination of reduced work schedules and furlough programs for employees globally consistent with applicable laws and regulations. These actions also included pay reductions for our senior executives and board of directors.
At the same time, we limited travel to business critical trips only implemented work from home processes, where possible reduce non essential discretionary and project spending adjusted our expected management incentives and participated and government programs where appropriate.
Because of these actions are profitability measures for the second quarter reflect some sizable cost savings most of which we do not expect will repeat in the second half of the year.
However, they are consistent with our commitment to successfully managing through this period of uncertainty.
Furthermore, they reflect no small amount of personal sacrifice on the part of our employees.
During these trying times.
These actions have positioned us to navigate successfully through the second half of the year and as a result, we do not anticipate the need for further broad based cost reductions.
Tenant is a resilient company that will emerge from this health crisis and a strong position.
And I am proud of the way our team members have responded with determination dedication and resourcefulness.
Operating at a coal that environment is certainly a challenge, but our dedicated response team led by our COO, Dave Hommel continues to support our tenant locations worldwide and staying on top of any issues as they emerge.
As we outlined last quarter, we continue to work closely with our customers supply chain partners and carriers and to date, we've experienced no major disruptions.
Before we shipped to our financials, we want to provide an update on our enterprise strategy, particularly as we work to navigate the current environment.
For more on that I will turn the call over to Dave Homo.
In addition to heading up our dedicated pandemic response team, which supports our locations around the world Dave leads the key initiatives associated with our enterprise strategy of winning where we have competitive advantage.
Reducing complexity and building scalable processes and innovating for profitable growth.
As I mentioned last quarter, the pandemic has not the rails our efforts in these areas because much of what we can accomplish is entirely within our control. The initiatives. We have launched and continue to drive not only helped us to manage through the pandemic, but will enable us to emerge with a.
Stronger operating model as well.
Dave. Please go ahead.
Thank you, Chris and Hello, everyone as Chris noted, we continue to push forward with our enterprise strategy because it is central to how we can ultimately grow the business as markets start to recover.
Although we took significant expense reduction actions in the second quarter, we continue to fund and resource our strategic efforts.
In fact, we're reaping the benefits in 2020 from actions we took last year.
And have made important progress with new actions in the first half of 2020 that I'd like to highlight for you.
In analyzing our product portfolio globally, we've made significant progress with strategic pricing changes. In addition to exits from margin diluting products, we announced last year that we expect will lead to further improved gross margins as volumes return to normal.
We've established standard product configurations for our most popular products and our keeping them in stock for ease of ordering and fast delivery. This will allow us to simplify how we sell manufacturer and service our machines.
All of which improves our relationship with our customers and our ability to deliver improved business and operational results.
Specifically in our North American business, we're using 80 20 methodology to segment, our strategic account customer base and distribution channel partners.
This helps us in focusing on our best customers, while reducing unwarranted discounting in order to improve efficiency and profitability.
At the same time as part of a geographic portfolio optimization initiative, we have restructured our Japan organization into a wholly indirect go to market channel.
This will enable us to better leverage the strength of local channel partners in serving local customers.
It also will allow us to align our cost structure to the profitability potential that local market.
In China, we've begun the consolidation of the manufacturing footprint of tenant China, and our new Gal made business, which we acquired in early 2019.
This new infrastructure will provide singular focused on how to best leverage the combined product brands and channels to maximize market share in this important and very competitive market.
Additionally, the consolidated footprint on operations will deliver cost synergies and supply chain leverage to improve the profitability of our China business.
In terms of new products, we launched the ITC branded CTP five and the tenant branded CS five earlier this year.
This marks the first time, we've leveraged and IP platform design to launch products under both the PC and attendant brands.
Both of these products are small space floors, scrubbers that enable efficient cleaning of spaces like restrooms restaurants and coffee shops.
At a competitive and entry level price. These products offer a professional result, and an attractive alternative to mop and bucket cleaning, which are small space customers tell us. They are looking for in a cobot 19 world.
Also we recently launched our new F 16 ride on sweepers, which features lithium ion battery technology.
And is well suited for industrial floor sweeping applications in vertical markets like food and beverage and warehousing.
These markets have fared relatively well despite the pandemic and we're excited by the positive response from customers to this new product.
Lastly, we're building on the North American success of the T. seven am are we began introducing our autonomous mobile robot cleaners to customers in EMEA and APAC markets.
While pandemic related restrictions have hampered our plans to aggressively show demonstrate and pilot the am our customer interest remains very high and we are working hard to expand our am our offerings.
Overall, our strategic efforts towards simplifying our business and improving our operating model remain on track despite the pandemic.
And I want to thank our tenant team members around the world for their hard work in that regard.
I'll now turn the call over to Andy who will discuss our financials.
Thank you, Dave and Hello, everyone. Please note that in my comments today any references to earnings per share, both GAAP and non-GAAP earn a fully diluted basis.
As Chris noted and its second quarter results reflect the negative impact of the current virus endemic.
The second quarter of 2000, 2010 reported net sales of $214 million down approximately 29% year over year.
Organic sales, which exclude the impact of currency effects declined 27.2%.
The decline in sales during the second quarter of 2020 was greater in the first two months the quarter than in the last month for the quarter.
Organic sales declined 31.6% and 38.5% in April and May respectively.
With a decline in sales dropping at 12.4% in June.
The decline in revenue for the quarter was the result of continued slowdowns in some end markets amid widespread disruption to our customers operations.
In addition, we're currently seeing a decline in July order rates that are consistent with the level we saw in June.
While we are encouraged by the reduction in the rate of sales declines that we experienced in the quarter.
We cannot say whether these month to month trends will continue in the second half of the year given the unpredictability of endemic.
Turning to the bottom line for the second quarter.
We reported net earnings of $14.3 million or 77 cents per share down from $14.8 million or 81 cents per share in a year ago period.
Adjusted EPS, which excludes certain non operational items and amortization expense totaled 96 cents compared with $1.35 in the prior year.
Let's take a closer look at our second quarter is sales results by geography.
As a reminder, we grew sales into three geographies the Americas, which includes all of North America and Latin America.
EMEA, which covers Europe, the middle Eastern Africa.
In Asia Pacific, which includes China, Japan, Australia, and other Asian markets.
Sales in the Americas declined, 28.1% or down 27.0% organically.
With overall declines across both North America in Latin America.
While we continued to experience strong demand for tenants a Thomas cleaning machines in North America.
This was more than offset by the negative effects from the pandemic.
Sales in the Europe Middle East in Africa region were down 32.3% for 30.2% organically.
Merrily due to the broad economic impact of the pandemic across the entire region.
Shutdowns of customer facilities were widespread in the second quarter and tenants manufacturing facilities in Italy were closed for approximately eight days in early April in accordance with local government directives.
Sales in the Asia Pacific region decreased 21.8% or 20.1% organically, primarily as a result of significant decreases in the sales in China due to slower recovery in export dependent businesses.
Along with declines in Japan in Southeast Asia due to the endemic.
Overall, but all of our business categories were down year over year, our service and parts and consumables businesses, where comparatively less impacted.
While equipment sales were down approximately 33% year over year service revenue was down 17% and revenue from parts and consumables was down 22% over the same period.
This reflects tenants efforts and helping our customers meet their cleaning and equipment maintenance needs during the pending.
Now onto margins.
Adjusted gross margin during the second quarters of 2020 in 2019 were 42.3% and 41 point, 0.4% respectively.
The year over year increase primarily reflects actions related to tenants enterprise strategy, including pricing and cost initiatives as well as cost actions related to our responses to the pandemic.
These included employee furloughs reduced work hours and benefits from government programs.
Turning to expenses during the second quarter, our adjusted SNA expenses were 28.6% of net sales compared with 29.0% in a year ago period, mainly as a result of cost containment efforts.
Benefits from government programs and adjustments to management incentives.
As Chris noted careful SNA management is an important part of our response to the pandemic.
Combining these results our adjusted EBITDA in the second quarter of 2020 was $35.3 million or 16.5% of sales compared with $41.8 million or 13.9% of sales in the second quarter of 2019.
The increase as a percent of sales was attributed to cost savings actions that we already discussed including employee furloughs and reduced work schedules.
Benefits from government programs adjustments to management incentives.
And other discretionary spending reductions that we implemented in the quarter.
We estimate approximately $15 million of the savings will not repeat in future quarters.
As for our tax rates in the second quarter. The company had an adjusted effective tax rate of 20.4% compared with 11.7% in a year ago period.
In a year ago period, we realized a discrete tax benefit.
Due to a partial release of our evaluation allowance on deferred tax assets.
In the second quarter of 2020 as mentioned, our adjusted EPS, which excludes certain non operational items and amortization expense.
I was 96 cents compared with $1.35 in the second quarter of 2019.
Turning now to cash flow capital allocation and balance sheet items.
The second quarter of 2020, and that generated $39.8 million and cash flow from operations.
Primarily driven by business performance.
Also in the second quarter the company repaid the $125 million, we had previously drawn as of precautionary measure from our $200 million revolver.
As of June Thirtyth, we had $99.3 million in cash and cash equivalents.
Approximately $157 million of Undrawn funds on our revolver.
Lastly, turning to guidance.
As previously announced we withdrew the full year guidance. We had provided on February 20 in 2020.
Due to the uncertain nature of the ongoing pandemic.
At this time, we still cannot predict that total impact on our businesses and financial results for the remainder of fiscal 2020.
Nevertheless, we will do what is necessary to maintain sufficient liquidity and to preserve our ability to ramp up quickly as markets recover.
With that we will now open the call to questions. Operator. Please go ahead. Thank you as a reminder, ask a question you on the star one on your telephone to withdraw your question. Please press the pound.
Please standby, we compile acumen a roster.
Your first question comes from the line of Mike Shlisky from Colliers Securities. Your line is open.
Thank you and good morning, everybody.
Hi, good morning, good morning.
So the Taiwan the start on your comment.
Andy about you must begin on slide 14 to 15 million of the savings will not repeat in future quarters that that part of your vote there.
I guess, maybe first is executing on annualized basis or a quarterly basis just.
Just to make sure I get that right and then maybe secondly.
We will adjust all come back in one big Lumpier and in the third quarter or will will the expense reductions and other cost actions kind of gradually come back as the sales come back.
So thanks, a question Mike So first off a $15 million is that is a savings we had in the quarter in the second quarter, we experience that helped.
Boost our EBITDA results and Thats. The first party question. The second part you think of things like government savings programs that we were able to take advantage of that was about $5 million of that savings in the quarter that we're not expecting to repeat in future quarters. Yet. Another example is the employee actions some of the furloughs or work reductions we took.
In the quarter to reduce our expenses as Chris mentioned, we're not planning any any broad based actions at the current time. So we wouldn't expect to see those cost savings in future quarters I just a couple of examples.
That makes sense.
Okay, Okay, well I would suppose then obviously orders here a little better this quarter you all those sales, but I was offset some of those costs going back.
So I guess they won't be just the lumping 15 million less.
Once you get to topline.
Together.
Okay, that's fine.
You also mentioned that the with Dave you mentioned is any comment using the 20 methodology.
Kind of get some additional.
Efficiencies out of the business.
Kind of curious are you moving that as a very wide scale companywide basis, with maybe not that Furthermore, or some kind of brought strategy or I, just kind of using some basic principles.
That is well known today to get that that.
Hi benefit going.
Yes. Thanks for your question, Mike, we educate ourselves on 80 20 methodology, but it is just one of many tool tools, we have in the two let as we analyze our business for improvement going forward. So we're using I'd say, we're using the most appropriate tool that's available to us and each instance, two to drive our strategy.
So it so it is now large that wide scale companywide consultants and plant just your own operations duals vessel is a lit bit.
I think thats, a fair characterization, the GPS strategy that weve articulated in the past is really the holistic broad enterprise framework for using and there are number of tools within that framework.
Okay.
I wanted to ask also about about your new compact products.
Especially in the West I'm curious how pantry a are you in the in the restaurant in small coffee shop end market I thought that some of your stuff is movement logged as quickly as I can add quarter are very large store restaurant.
Our real organic opportunity within North America on those smaller pump Michael.
Yeah, Great question historically, our share has been lower in some of these small space markets or smaller spaces within larger environments for our customers. We recognize this years back and started expanding both our portfolio to service those applications and also our channel's ability to reach those customers and so really the the CTP five was the product I mention.
And in the narrative is just the next step in our advances into that important marketplace to improve our market share there.
Okay, perhaps one that is credit score I would just I would say historically, it's been the part of the market, where we have been most are underrepresented, we've always been interested in figuring out a way to enter.
It's.
A little more complicated than our historical.
Vertical markets, but I think with these two new products.
Our getting our customers to become excited to move away from mop and bucket to mechanize cleaning, especially now in cleaning is becoming.
A higher order.
Priority Forum.
And is actually beginning in gaining some interest because we finally, we have a product also I think is stay set that set the right entry level price point and that was always the challenge. So I think we have the right pro product that does a very professional job and it's at the right propane price points.
That is creating interest in a market segment in our fast food restaurants convenience stores gas stations, where we really have very little if in many cases no presence today, so as a potential exciting opportunities down the road, you're not going to see this thing take off right away, but it's our first.
Foray into it.
Got it that but it is a lot of square footage so sounds very promising.
And then perhaps that were paid on my last question for analysis.
Growth for Chris.
This past quarter.
In the sorry, and on the first quarter call I recall you.
You said it was kind of a theory that you know with millions of folks getting sick worldwide and a lot of both going out there with his pandemic there could be a tie into an increased focus on claiming that in the works in the.
Workplace and in public areas going forward.
Hi, there was that that was a very cautious and Mary Anne.
Very strange time in the market can you update. This now is that theory, what you're hearing from customers kind of becoming a reality here among our people out there looking to clean things.
More and a lot more visiting today than in the past.
Well I think it's a remains the theory, we're not seeing it play out in the marketplace yet at least for our products, we do believe that.
In this in the medium to longer term that more robust cleaning protocols will be put in place and that people will adhere to a higher standard of clean we should bode well for our product portfolio also bode well for products like a AMR.
Right now the majority of customers around the world are still very focused on the high touch cleaning using sanitation chemicals and devices.
To.
To hold the the pandemic at at Bay, I mean, we think that floor cleaning has not yet return to a priority part of their creating protocol. So as we showed that ended in June in our sales were down less than they were in April and May.
And that is mostly because we're seeing more of our customers open up right. So thats where were starting to see the benefit we're not yet seeing the benefit.
From a higher standard a clean but the good news is that we have very strong and intimate relationships with our customers around the world and we're having this conversation with them and we will be the first the now because we're trying to influence them in this direction when that trend starts turn.
Got it that's sounds great I will hop back in queue. Thanks, so much.
Your next question comes from the line of press Moore from CJS Securities. Your line is open.
Good morning is a Stefano Chris calling in for Chris.
Yep.
Good morning, you mentioned.
Declines in June with less severe than the declines in April could you, possibly quantify that for us maybe april versus name and versus June.
Yes, as I said in the remarks.
April was.
Well as 30% reductions in sales and May was set up or anything of that 13% and June was somewhere around 12.5%.
Reductions in sales and as Chris just kind of mentioned as well and in July the trend we're seeing in our orders is consistent with that with the June level.
Got it thank you.
And besides any cove unrelated shutdowns what are the biggest uncertainties casing tenant in the second half of the year.
None in what we said it is the fact that is many of our customers have been closed down some are cautiously opening summing are running at.
Reduced to capacity.
Kind of standard floor cleaning business not remain a priority at this stage as I do the high touch disinfectant cleaning.
So I think the biggest uncertainty going into the market is.
Into the second half is is that trend does not improve and of course eyes, we anticipate it's going to be a pretty bumpy ride in the second half.
If there were to be a significant disruption another closed down.
On a broad based in the broad based manner in the U.S market or elsewhere that would obviously also have.
A significant impact on our business, but what we're doing is in our we have done a lot of very detailed scenario planning for a whole host of things that could play out and we know.
How we need to react and each of those cases to manage the business successfully through this uncertain time and are prepared to pull the necessary triggers quickly.
To stabilize the business that has to build on that and gang tend to us and look at its really the pace of that recovering now you asked about acetic Carl Iris is just just saw a dominant right now with all of our with our end markets internally how quickly that it's recovers I'll quickly our customers open and how quickly they are going to invest in some capital that's really kind of them.
The risks were.
And the other thing I would say is in this last quarter. We said if you looked at what customer segments were.
We are performing better on a relative basis. It was non essential to our essential retail warehousing logistics.
That remains the case in manufacturing remains a very slow our buildings our service contractors have shifted relate to this high touch disinfecting planning that's impacting our business hospitality.
It is also down and and healthcare, which what we had an initial bump in the first quarter.
That helped us that has not repeated in the second quarter. So have a healthcare remains.
Down as a vertical market for us so we havent seen much shift our hope is that we're beginning to see some some activities. Some life in some of these other vertical markets. Once that starts to happen I think that our trajectory will be into improve.
Got it that makes sense. Thank you.
Your next question comes from line Marco Rodriguez from Stonegate capital markets. Your line is helping.
Good morning, Thank you for taking my questions.
Good morning morning Vonnegut.
I wanted to.
Talk a little bit about the enterprise strategy.
Typically on the reduction of your operational complexity.
You highlighted a couple things you did or you're working on right now in terms of obviously exiting some product lines and then establishing some standard configurations for for manufacturing.
I was wondering if maybe you could just talk more as far as where you sort of our on that road map. Our you are you still in the early and these are we mid mid cycle or towards the end is ours.
The about that specific area of your your strategy.
Thanks. Marco. This is this is Dave I'll respond to your to your question.
First and foremost, we're very excited and committed to Tgps enterprise strategy and it is the primary means we expect to deliver on our long range financial targets, where we're at in the journey, we really develop this.
Over the years 2018 late 2018 through 2019 and 2020 represents the first full year of activation of the strategy in the business and so given that our strategic horizon is for years I would say, we're really still in the early days of execution of the strategy. We're very encouraged by what's possible within our business.
And the entire company, including leadership team is is committed to execution.
Even in the midst of the challenges with operating within the pandemic what I highlighted for you in the narrative was some will be more recent developments and we expect to have more details as we continue to roll forward with the strategy.
But it's nice to build on that if you look at standard configurations, Weve, which we believe as a really big deal both from a customer perspective in our and our ability to lever.
And with shorter lead times and and over time. It may also take some cost or products to compete more effectively our price.
We've we've really just launched that our hope is let measured by the end of September that 90% of our tenant machines have the standard configuration that means they have it that has doesn't mean that we've actually.
Fully educated the Salesforce thats fully educated the customer base. So this is the part of our product portfolio that starts flowing through so I on that piece I don't think we're seeing any benefit yet and as Dave mentioned in over the work we've done in Japan really hasn't shown any any any results yet because that's the still work and proud.
Address and definitely in China.
The integration of the two businesses ton Kalmay that's work in progress right now and I wouldn't anticipate really seeing a read out of those benefits maybe Dave until 2021, yes in any significant way I think that's right. So dave's characterization of where we are and most of these things and his early innings I concur with that.
Very helpful.
Then switching here to the 15 million benefits you UAN.
Recognized from the onetime cost cuts.
Can you maybe discuss what's the split between SGN and cost of goods or was it all primarily down in SGN AG.
It was it was in both that work now that we're going to like any details of that over time, focusing on EBITDA Angus.
And we talked about as 15 million EBITDA, but it was it was a little bit in both you can you get some of that one.
Got it and where there any other cost cuts that were that we're realizing a quarter that are more permanent in nature like in other words, where they are more than 15 millions.
Of course.
Cost reduction as a benefit the quarter.
Now we'd lot of the actions that we talked about me Chuck.
We are more temporary nature, given the pandemic again keep in mind one of our primary focus is we're trying to do is make sure when markets recover and they will recover that we're ready to initiate ready to ramp up and our customers customers needs. So thats really one of our key principles, we talked about last quarter and weakness in health trading in the second quarter that we really want to be ready when this when the spend and.
Subside.
Got it and then just also saw some understanding the dynamics you're seeing from your customers.
With their obviously a lot of places were shut down.
In Q2 early parts of Q2.
But presumably most most places are kind of opening up or lease operating at some.
Former capacity or whether it's Rick will reduce capacity or whatnot, but I would assume that they would still be.
Focused on clean.
But if I'm understanding you correctly and correct me if I'm wrong. It sounds like perhaps some of that customers are are shifting some of their spend at least temporarily from clean floors to more about sanitation tied aspects of is that fair.
Yes.
Thats fair and that has been the priority as high high touch surface disinfectant cleaning.
The to keep the of the pandemic at Bay and floor cleaning has not been a core part of that protocol at least until now.
And your rights that.
Many of our customers were shut them.
In parts of the second quarter and I think we think that the the June improvement is completely due to more customers opening up and and beginning to order again.
And we've seen that trend carry over to the July and so thats at least a a promising early signal, but I would say that.
As we look into the back half of the year. There is no definitive signal that we're going to see things improve dramatically and of course, there could be another major disruption to the business things start to close down again, so we're anticipating it's going to be.
It's going to be.
Pretty bumpy and and if we could comment maintain the.
June July level, and maybe improve on that a little bit as we go forward that's kind of how we're modeling our business right now so two things that add to Chris' comments is one and keep in mind for for many of our customers. This is a capital expenditure. So some are pausing and what they buy they're not necessarily shifting that in some cases they are.
They are pausing and weightings of things, meaning that our clothes beans are opening their pausing. The second thing I'd add is that now the comments, we talked about service and PNC and you certainly saw.
The last seven impact, particularly in the second last last month for the quarter. So as we move into that customers are shifting their maintaining there that you to maintain your equipment any first maybe the first entered news opposing as new capital investment. So that's kind of where we're seeing some of that.
EMEA quicker quicker recovery than than on the capital side.
Yeah and service is usually a leading indicator of improvement historically, that's the way it worked the last recession.
On a very very helpful.
Then I was wondering if maybe you can kind of talk little bit about your thoughts on the revolver.
The obviously took it down you expressed the idea that obviously was it was.
Defensive in nature, just given the the great uncertainty on the pandemic.
Thank you repaid tobacco it looks like pretty pretty soon after you took it down and it sounds like you're still expecting some choppiness, but.
Some level of confidence in the second half of the year on terms of your overall business, but maybe to just kind of talk about your thoughts there on on the revolver.
Yes, so you feel like we talked about cash flow in the quarter was pretty strong and we feel pretty good about that and in the out customers. We have guys. The customer base theres still paying and that we feel pretty comfortable that we've talked about publicly some opportunities we have to manage inventory and that could be another potential source for us so given given a given those.
Turning positive cash flow and a cash balance we still have at the ended the quarter and the fact that we've got a great relationship with our banks and can always drama facility if need be we didn't dealers in necessary to have the cash is sitting on a in our in our cash and our banks right now so I'm comfortable with that situation, one that way and we're recovering a little bit and to adjust the.
Cash that we have and a cash flow is on the core.
Got it and last quick question for me.
Just kind of wondering just given all the the.
Volatility out there in the market.
As it relates having the competitive dynamics and competitors in in different regions are there aside from from the new product that you're launching are there any other sort of.
Advantageous strategic initiatives that you might be looking at whether that.
Positioning for acquisitions or other type of product launches in the near future.
One wanting our contained we talk about am are in the quarter. We've mentioned it was it was I continue to be bright spot for us being in specific on numbers, but can continue to be bright spot. We've continued to invest and expanding that that offering now where I'm. We're not there yet we haven't announcing at but that's.
One area that will continue to invest help you expand and deep pocketed about the small space as well. So those are called areas I think we could we highlight.
Potential right, but our priority right now is.
As successfully managing through the uncertainty of the pandemic.
And it is continuing our innovation.
Agenda, and you're seeing we are rolling out new products and but most importantly, we've said this is maintaining the integrity of our GPS strategy because all the initiatives within GPS are all about simplifying our business and improving our operating model that helps us now in the short term, but more importantly, we.
Will allow us to get off to the fast start when markets recover that Andy talked about that's where our focus is right now.
Got it understood. Thank you Mike very much I really appreciate your time.
Thank you.
Your next question comes from line as Joseph Mondillo from Sidoti and company. Your line is healthy.
Can you.
Please UN mute your line is open.
Okay.
Your next question comes from line, Brett Carney from Gabelli.
Your line is open.
Hi, guys. Good morning, Thanks for taking my question.
Morning, Good morning.
Great to hear.
Our.
Still progressing well and their continued customer interest in those other regions.
When that becomes visible again I was wondering the nature of conversations you're having customers on that front would you say its consistent the kind of where we were even before the pandemic or have kind of you elements.
Factored into customers thinking in terms of.
Every business has more considerations today.
You know human occupancy levels as well as.
Cleaning considerations and it and I'm just curious curious any new dynamics that come into those are ongoing conversation you have around the all right autonomous offering your out with customers.
No I would say they are they the same dynamics as before the call. Good play out now the one thing that's changed is that as companies are evaluating that cleaning protocols and they're realizing that they're going to have to be spending a lot more.
Labor intensive time on this high touch disinfectant screening.
They need to figure out ways to keep the entire facility clean and do it in a very efficient manner and and so that they can shift to labor to these more higher order.
Lending priorities and those customers understand that are becoming more interested in a amare as a way to help them.
And not have to expand their labor pool get all the cleaning jobs done, but get it more done more efficient. So that's a conversation we're having with more of our customers now.
Because of the Pandemics that we really didnt have.
Prior.
Okay, great. Thanks, so much.
Welcome. Thank you.
Hi, guys. She would like to ask your question. Please press Star and then number one and your telephone keypad. Your next question comes from the line Mike Shlisky from Coherus Securities. Your line is open.
Hey, guys stretch to can you just all questions from here.
And I wanted to follow up on on on some of the Mark questions and comments that were that were made.
Is that market getting any more crowded these days.
As you get the occasional authority MELA, Hey, checkout. This product. It's also an automated grubber.
They seem like there from smaller startup type of conditions are.
Someone's garage as opposed to a major company, but are you are the big companies any of the four or five large players decide you.
Going to that market with anything that on par with you I am all right now.
I would say you are correct in that many of the entrance are smaller entrepreneurial companies coming outside of our industry.
And as as we said in the beginning the.
Hey, Amar.
Our equipment and ability to perform is important but more important than this is what they can't match is you need to have a sales and service infrastructure in place to support this to educate your customers to help them change there.
They are there their cleaning processes to to be successful and again the benefits that they believe are inherent in the amar.
Our technology and none of them.
To have that to me and the cost of building. Those infrastructures is huge so I think thats a real a barrier to entry for a lot of the small players when you look at our.
Players in our industry right now there is really nobody who has commercialized.
And am our product mix scale other than us. So we believe we have significantly and and we like our position going forward.
Okay.
Also wanted to touch on some of the 2024 goals that are in your slides can you comment today as well I just want make sure unclear on what the base year is.
Are you kidding.
Okay, and this year as the base or as new count 2018, or 20, plus some normalized growth what.
As you.
As your base throughout 2024.
Yeah. Those are goals, we obviously set before the chronic virus pandemic.
So.
And given guidance is probably not fair to say 2020 as the base here.
Because their care.
I think about with the definitely for next year, which went and an coming out numbers for next year, yet, but but the base here would be prior to 22020 and in our goals that we sell you think about it we talked about in February and I think thats still thinking about prior years as a base is a better way to think about.
Well, some so perhaps or guidance for 2020 that you gave in February that's going to say, okay therapy, perhaps or is that closed you can.
Yeah, I think thats, probably a fair bit yes of course.
As we think about the recovery from the pandemic, we've got I really think about what that looks like and how that will add little deal that you will talk about these these different rates of recovering we have mentioned earlier that the pace of recovery might might impact that.
So I I don't want dental and give you an impression that.
That's what we're saying like 2021 at this point, we haven't haven't we haven't disclosed that yet so.
But going forward expand xtend MX, yet at the 2020 guidance that we laid out in February as a fair way to think about the base.
Okay great.
And a one last one from me out could you update us on the search for them.
Turning to our CFO as I recall, the initial announcement pizza stay on to help out until July 31st or tomorrow. So if I want to know where you kind of stand there with without.
Vision.
Our first and foremost.
Andy as interim CEO.
CFO and his team have done a terrific job and we haven't missed a beat.
I think is important for you and others to know that but what I can tell you is that we have commenced a search process we're not.
We're not going to talk about when that will be concluded but it has been kicked off.
Okay.
Yes, Thank you and and yes, I will also have they been hit offering very impressed with Andy as well. So so it does seem like us off while you're definitely not just to be thanks. Much guys. You My question.
Your next question comes from line of Joseph Mondillo, Cincinnati and company. Your line is open.
Hi, everyone. Good morning.
Can you hear morning already or do.
Yep, Yep, making area, Okay, I'm getting some static so I just wanted to make sure.
So my first question just regarding your sort of productivity improvement plan. However, you want to.
Have you guys refer to that.
Related to go to market strategy supply chain value engineering, everything that we've talked about for a little while.
You have a pretty.
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Detailed road map and plan.
Going ahead, and I'm, just wondering what sort of the timetable of.
Finishing a lot of that is.
A year from now should should we expect a lot of that to be done I understand that some of this is just an ongoing multiyear just ongoing but.
A lot of the heavy lifting when do you think you'll be done with.
A good portion of that.
Thanks for your question. Joseph This is this is Dave I'll address the question really assays Thats, a four year strategy and we'll pace the execution of the initiatives within the strategy over the over that time period, and so we'd expect the impact to read out.
Over the four years, it's not a case of doing all the work upfront and then and sort of harvesting harvesting the impact we had to pace. The individual initiatives based on a couple of factors you know one is.
Lead time to execute some some changes we contemplated make you just have to get started earlier because it takes longer to realize the benefits. We also have to balance that against resource availability and filters to make sure that we can execute well usually initiatives. We've got to have the bandwidth to do occur.
To execute as we would it if we would like to so it's it's really a four year journey of execution across a broad range of initiatives within the business.
Okay.
And then could you.
Give us your thoughts Sir.
Put up provided an update on your competitive landscape.
Especially in this pretty challenging time, how your competition doing.
What you're saying.
Yeah, I mean, as and we're not seeing anything new or different I think we've we're we're all trying to manage through this period uncertainty as well as we can.
What I can say as I don't think we've seen any new material initiatives from any of our competitors.
Right.
In terms of a winning new customers launching new products. We I've said that we continue our lead and AMR and we've not seen any major incursion by anybody on that front now, but it's not unusual that in this kind of a periods is that.
Some competitors will resort to.
Some pretty aggressive pricing. So I think that is this more aggressive than we normally see.
And that really maybe the most important dynamic that.
So we're looking at and dealing with right now.
Okay, and I may if I may have missed this when you're talking about aim our but is the key you usually have been introduced a new model outside of the T. seven correct.
Can we expect.
A new model being introduced with am our capabilities at some point later this year.
Stay tuned.
And just now we are in this is you know this is not a one off for US right. This is a long term strategy and we fully anticipate over time building a portfolio of capabilities in the AMR space. So we're not prepared to tell you. When the next one is coming but stay tuned.
Okay, and then just to follow up with that and there will be my last question.
The R&D has come back.
On a percentage basis quite a bit high in the second quarter, even in the first quarter a little bit when you look at the last.
Three quarters. If you only 19, just wondering what to make added that especially with the cash flow that you driven in the you know drove in the quarter.
We would continue the spending especially.
Thinking about am our et cetera, So just wondering about R&D and how that looks going forward and what happened in the first off.
Well I think you know and environments like this we need to be cautious improvement across all our cost categories and we've had to do that as well it within R&D, but what I can tell you we as we have not in any way compromised.
Any of the important.
Innovation initiatives and we certainly have not compromised our work on Amazon.
Okay, great. Thanks for taking my questions have a good day.
Thank you.
There are no further questions at this time I would like to turn the call over to management for closing remark.
Alright, Thank you Christine.
Again, thank you all for joining us today.
So again, we hope you all stay safe and healthy.
So this concludes our second quarter earnings call and you may now disconnect take care everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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